Chapter -1

1. INTRODUCTION
1.1 Introduction of Working Capital Management
Working capital is the amount of funds necessary to cover the cost of operating the
enterprises. Every business needs funds for its establishment and to carry out its day-to-day
operations. Long-term funds are required to create production facilities through purchase of
fixed assets such as plant and machinery, land Building, furniture etc. Investment in these
assets represents that part of firm's capital which is blocked on a permanent or fixed basis and
is called fixed capital.
Funds are also needed for short-term purpose for the purchase of raw materials, payment of
wages and other day-to-day expenses etc. these funds are known as Working capital.
1.1.1 Concept of Working Capital
There are two concepts of working capital.
1) Gross working capital
2) Net working capital
In the broad sense, the term working capital refers to the gross working capital and represents
the amount of funds invested in current assets. Thus, the gross working capital is the capital
invested in total current assets of the enterprise. Current assets are those assets which are in
the ordinary course of business can be converted in to cash with in the short period of time
normally one accounting year.
1.1.2 Constituents of Current Assets
1) Cash in hand and bank balances.
2) Bills receivables.
3) Sundry debtors.
4) Short-term loans and advances.
5) Inventories of stocks, as:
(i) Raw materials,
1

(ii) Work in process

(iii) Finished goods.
6) Temporary investment of surplus funds.
7) Accrued incomes.
In narrow sense, the term working capital refers to the net working capital. Net working
capital is the excess of current assets over current liabilities, or say.
Net Working Capital = Current Assets Current liabilities.
Net working capital may be positive or negative. When the current assets exceed the current
liabilities the working capital is positive and the negative working capital results when the
current liabilities are more than the current assets.
1.1.3 Constituents of Current Liabilities
1) Bills payable.
2) Sundry creditors or account payable.
3) Short term loans, advances and deposits.
4) Accrued or outstanding expenses.
5) Dividends payable.
6) Bank over draft.
7) Provision for taxation. If it does not amount to appropriation of profits.
The gross concept is sometimes preferred to the net concept of working capital for the
following reason:
(a) It enables the enterprise to provided correct amount of working capital at the right
time.
(b) Every management is more interested in the total current assets with which it has to
operate than the sources from where it is made available.
(c) The gross concept takes in to consideration the fact that every increase in the funds of
the enterprise would increase its working capital.
(d)The gross concept of working capital is more useful in determining the rate of
return on investments in working capital.
2

The net working capital concept, however, is also important for the following reason
(a) It is the qualitative concept which indicates the firm's ability to meet its operating
expenses and short term liabilities.
(b) It indicates the margin of protection available to the short term creditors, i.e., the
excess of current assets over current liabilities.
(c) It is an indicator of the financial soundness of the enterprise.
(d) it suggests the need for financing a part of the working capital requirements out

of

the permanent sources of funds.

1.1.4 Characteristics of Current Assets
Current assets have a short life span. Cash balances are held only for a week, so accounts
receivables typically are held for duration of 30-60 days and inventory may be held for 30100 days. They are rapidly transformed in to other assets form. Cash is utilized to purchase
raw material. Raw material is converted to work in progress which is converted to finished
goods. Finished goods are sold for cash or credit, which creates accounts receivables are
finally realized in to cash.
Since the various components of working capital closely interact with each other, decision
pertaining to one component must be taken after given consideration to the effect on other
components.
1.1.5 Factors Influencing Working Capital Requirements
There are a number of factors influencing the working capital requirements of a company.
These elements have a considerable extent of impact on the short-term performance of a firm.
The factors influencing working capital requirements can be categorized into the following
types.
(i) Nature of the Business.
This is one of the primary factors influencing the working capital requirements of a firm .For
instance, a service firm like a hotel has a short operating cycle since it sells mostly on a cash
basis and has lower working capital requirement. A manufacturing firm, on the other hand,
has a longer operating cycle and invests more in its current assets. It thus has greater working
capital requirement.
3

(ii) Seasonality of Operations.

Some firms products sell only during particular seasons. For instance, air conditioners sell
more during the summer than in the winter. Such firms have greater working capital
requirement during peak time. Seasons and lower requirements during other seasons. Firms
whose sales are not affected by seasons have stable working capital requirement.
(iii) Market Condition.
The level of competition existing in market also influences working capital requirement.
When competition is high, the company should have enough inventories of finished goods to
meet a certain level of demand. Otherwise customers are highly likely to switch over the
competitor's products.
(iv) Supply Condition.
If supply of raw material and spares is timely and adequate, the firm can get by
comparatively low inventory level. If supply is scarce and unpredictable or available during
particular season, the firm will have to obtain raw material when it is available.
1.1.6 Types of Working Capital on the Basis of the Requirement.
Working capitals are of many types on different basis. Here is the classification of working
capital has been done on the basis of requirements which are as follows:
(a) Permanent Working Capital.
It refers to the minimum amount of the investment which should always be there. It is the
fixed or minimum current assets such as cash and bank balance, debtors, and other shortterm assets i.e. inventory etc. In order to carry out business smoothly. This investment is a
regular type permanent working capital. Tendon committee referred to working capital the
following characteristics
Unlike fixed assets, it keeps on changing its from one asset to another. It cannot be reduced
substantially as long as the firm is going concern. With the growth of the business, the size of
this component of working capital also increases. This hard core working capital is very
important from finance point of view. It should be financed from long term sources of fund
4

for this purpose besides sloughing back of profits, shares and debentures can be issued to raise
necessary funds.
(b) Temporary Working Capital.
The amount of temporary this hard core working capital identification is working capital
keeps on fluctuating from time to time on the business activities. It may be divided in to two
parts i.e. seasonal and special working capital. Seasonal working capital is required to meet
the seasonal demand d of busy period or season occurring at stipulated intervals. Required to
meet extra ordinary needs for contingencies such as rising prices, fire strikes unexpected
competition or big advertisement campaign.
1.1.7 Need of Working Capital
Working capital is needed for the following purposes.
1) For the purchase of raw materials, components and spares.
2) To pay wages and salaries.
3) To incur day to day expenses and overhead costs such as fuel, power and office
expenses. Etc.
4) To meet the selling costs as packing, advertising, etc.
5) To provide credit facilities to the customer.
1.1.8 Operating Cycle of Working Capital.
Every business undertaking requires funds for two purposes investment in fixed assets and
investment in current assets. Funds required investing in stock; debtors and current assets
keep on changing shape and volume. For example, a company has some cash in the
beginning. The cash may be paid to the suppliers of raw materials, to meet labor costs and
other overheads. These three combined would generate work in progress which will be
converted into finished goods on the completion of the production process on sale, these
finished goods get converted into debtors and when debtors pay, the firm will again have
cash. This cash will again be used for financing raw material, work- in- progress, finished
goods, debtors and finally again cash. This time period is known as the working capital cycle
of the firm.

1.1.9 Management of Working Capital

According to smith, working capital management is considered with the problem that arises
in attempting to manage the current liabilities and the inter relationship that exist between
them.
The basic objective of working capital management is to manage the firm's current assets and
liabilities in such a way that a satisfactory level of working capital is maintained i.e., it is
neither excessive not inadequate. In other words, it must have an optimum size. Maintenance
of working capital and availability of funds at the time of needs. As a matter of the fact, a
business cannot survive in the absence of a satisfactory ratio between its current assets and
current liabilities furthermore its ability to prosper will largely be determined by the
composition of the current assets tools.
1.1.10 Components of Working Capital Management
Working capital management bears the following components1)

Estimating the working capital requirement i.e. forecasting of working capital.

2)

Finding out the optimum level of investment in various current, namely cash, account
receivable, and stocks. In other words, determining the size of working capital.

2) Finding out the optimum mix of short term funds in relation to long term capital.
3) Finding out all appropriate sources of working capital.
1.2 Need of the Study
Working capital is life blood and nervure center of business. Working capital is very essential
to maintain smooth running of a business. No business can run successfully without an
adequate amount of working capital.
Major points covered:

Understanding how to evaluate a companys liquidity position.

Calculating and interpreting operating and cash conversion cycles.

Evaluating overall working capital effectiveness of a company and comparing it with

that of other peer companies.

Identifying the components of a cash forecast to be able to prepare a short-term (i.e.,

up to one year) cash forecast.

Understanding the common types of short-term investments and computing

comparable yields on securities.

Measuring the performance of a companys accounts receivable function.

Measuring the financial performance of a companys inventory management function.

Measuring the performance of a companys accounts payable function.

Evaluating the short-term financing choices available to a company and

recommending a financing method.

1.3

Review of Literature

Review of literature is an objective, critical summery of published research literature relevant

to a topic under consideration for research. The review should describe, summarize evaluate
and clarify the literatures. It should give a theoretical base for the research and help to
determine the nature of research.
Since this study is based on the working capital management of a Radico Khaitan Ltd, those
literatures have been encompassed in the literatures sur-vey which were related to the
working capital management and financial performance of companies. Following are the
main literature pike:
Pike (1984), found in his study An overview of working capital management and corporate
financing that over the past 40 years major theoretical developments have occurred in the
areas of longer-term investment and financial decision making. Many of these new concepts
and the related techniques are now being employed successfully in industrial practice. By
contrast, far less attention has been paid to the area of short-term finance, in particular that of
working capital management. Such neglect might be acceptable were working capital
considerations of relatively little importance to the firm, but effective working capital
management has a crucial role to play in enhancing the profitability and growth of the firm.
Indeed, experience shows that inadequate planning and control of working capital is one of
the more common causes of business failure.
The research done by Herzfeld B., How to Understand Working Capital Management
describes that Cash is king--so say the money managers who share the responsibility of
running this country's businesses. And with banks demanding more from their prospective
7

borrowers, greater emphasis has been placed on those accountable for so-called working
capital management. Working capital management refers to the management of current or
short-term assets and short-term liabilities. In essence, the purpose of that function is to make
certain that the company has enough assets to operate its business. Here are things you should
know about working capital management.
The research done by, Samiloglu F. And Demirgunes K., The Effect of Working Capital
Management on Firm Profitability: Evidence from Turkey (2008) describes that the effect of
working capital management on firm profitability. In accordance with this aim, to consider
statistically significant relationships between firm profitability and the components of cash
conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed
manufacturing firms for the period of 1998-2007 has been analyzed under a multiple
regression model. Empirical findings of the study show that accounts receivables period,
inventory period and leverage affect firm profitability negatively; while growth (in sales)
affects firm profitability positively.
The research done by, Appuhami, Ranjith B A, The Impact of Firms' Capital Expenditure on
Working Capital Management: An Empirical Study across Industries in Thailand ,
International Management Review,(2008), The purpose of this research is to investigate the
impact of firms' capital expenditure on their working capital management. The author used
the data collected from listed companies in the Thailand Stock Exchange. The study used
Shulman and Cox's (1985) Net Liquidity Balance and Working Capital Requirement as a
proxy for working capital measurement and developed multiple regression models. The
empirical research found that firms' capital expenditure has a significant impact on working
capital management. The study also found that the firms' operating cash flow, which was
recognized as a control variable, has a significant relationship with working capital
management.
The research done by, Hardcastle J., Working Capital Management,(2007) describes that
Working capital, sometimes called gross working capital, simply refers to the firm's total
current assets (the short-term ones), cash, marketable securities, accounts receivable, and
inventory. While long-term financial analysis primarily concerns strategic planning, working
capital management deals with day-to-day operations. By making sure that production lines
do not stop due to lack of raw materials, that inventories do not build up because production
8

continues unchanged when sales dip, that customers pay on time and that enough cash is on
hand to make payments when they are due. Obviously without good working capital
management, no firm can be efficient and profitable.
The research done by, Thachappilly G., Working Capital Management Manages Flow of
Funds,(2009)

describes that Working capital is the cash needed to carry on operations

during the cash conversion cycle, i.e. the days from paying for raw materials to collecting
cash from customers. Raw materials and operating supplies must be bought and stored to
ensure uninterrupted production. Wages, salaries, utility charges and other incidentals must be
paid for converting the materials into finished products. Customers must be allowed a credit
period that is standard in the business. Only at the end of this cycle does cash flow in again.
The research done by, Beneda, Nancy; Zhang, Yilei, Working Capital Management, Growth
and Performance of New Public Companies, Credit & Financial Management Review,
(2008) examining impact of working capital management on the operating performance and
growth of new public companies. The study also sheds light on the relationship of working
capital with debt level, firm risk, and industry. Using a sample of initial public offerings
(IPO's), the study finds a significant positive association between higher levels of accounts
receivable and operating performance. The study further finds that maintaining control (i.e.
lower amounts) over levels of cash and securities, inventory, fixed assets, and accounts.
The research done by, Dubey R., Working Capital Management-an Effective Tool for
Organisational Success (2008) describes that The working capital in a firm generally arises
out of four basic factors like sales volume, technological changes, seasonal , cyclical changes
and policies of the firm. The strength of the firm is dependent on the working capital as
discussed earlier but this working capital is itself dependent on the level of sales volume of
the firm. The firm requires current assets to support and maintain operational or functional
activities. By current assets we mean the assets which can be converted readily into cash say
within a year such as receivables, inventories and liquid cash. If the level of sales is stable
and towards growth the level of cash, receivables and stock will also be on the high.
The research done by, Mc Clure B., Working Capital Works describes that Cash is the
lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund
operations, reinvest and meet capital requirements and payments. Understanding a company's
9

cash flow health is essential to making investment decisions. A good way to judge a
company's cash flow prospects is to look at its working capital management (WCM). Cash is
king, especially at a time when fund raising is harder than ever. Letting it slip away is an
oversight that investors should not forgive. Analyzing a company's working capital can
provide excellent insight into how well a company handles its cash, and whether it is likely to
have any on hand to fund growth and contribute to shareholder value.
The research done by, Gass D., How To Improve Working Capital Management (2006)
"Cash is the lifeblood of business" is an often repeated maxim amongst financial managers.
Working capital management refers to the management of current or short-term assets and
short-term liabilities. Components of short-term assets include inventories, loans and
advances, debtors, investments and cash and bank balances. Short-term liabilities include
creditors, trade advances, borrowings and provisions. The major emphasis is, however, on
short-term assets, since short-term liabilities arise in the context of short-term assets. It is
important that companies minimize risk by prudent working capital management.
The research done by, Maynard E. Rafuse, Working capital management: an urgent need to
refocus Management Decision, (1996) Argues that attempts to improve working capital by
delayin2g payment to creditors is counter-productive to individuals and to the economy as a
whole. Claims that altering debtor and creditor levels for individual tiers within a value
system will rarely produce any net benefit. Proposes that stock reduction generates systemwide financial improvements and other important benefits. Urges those organizations seeking
concentrated working capital reduction strategies to focus on stock management strategies
based on lean supply-chain techniques.
The research done by, Thomas M. Krueger, An Analysis of Working Capital Management
Results across Industries American Journal of Business, (2005) found distinct levels of
WCM measures for different industries, which tend to be stable over time. Many factors help
to explain this discovery. The improving economy during the period of the study may have
resulted in improved turnover in some industries, while slowing turnover may have been a
signal of troubles ahead. Our results should be interpreted cautiously. Our study takes places
over a short time frame during a generally improving market. In addition, the survey suffers
from survivorship bias only the top firms within each industry are ranked each year and the
composition of those firms within the industry can change annually.
10

1.4 Objectives of the Study

To study the conceptual frame work about the working capital management and
different ratios related to it.

To analyze some important ratios related to working capital management of Radico

Khetan Company.

To suggest some corrective measures on the basis of data analysis to enhance the
working capital management of the company.

1.5 Scope of the Study

1. Study the working capital management of Radico Khaitan.
2. Study the optimum level of current assets and current liabilities of the company.
3. Study the liquidity position through various working capital related ratios.
4. Study the working capital components such as receivables accounts, cash
management, and Inventory position
5. Study the way and means of working capital finance of the Radico Khaitan.
6. Estimate the working capital requirement of Radico Khaitan.
7. Study the operating and cash cycle of the company.
1.6 Research Methodology
When we talk of research methodology, we not only talk of the research methods but also the
comparison of the logic behind the methods, we used in this context of our research study and
explain why we are using a particular method or technique and why using the others.
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done systematically. In this, we study the
various steps that are generally adopted by researcher in studying his research problem along
with the logic behind them.
"The present study is based upon the case study method of2 research to investigate
procedures at micro level".
As the study is analyzing probing in nature, thus, entirely based on the secondary data
gathered through the annual reports of the organization. Therefore it provides a historical
perspective of decisions.
1.6.1 Research

11

Research refers to search for knowledge. Research is an original contribution to the existing
stock of knowledge making for its advancement. It is the pursuit of truth with the help of
study, observation, comparison and experiment. In short, the search for knowledge through
objective and systematic method of finding solution of the problem is research. The advance
learners dictionary of current English gives the meaning of research "a careful investigation
or inquiry especially through search for new facts in any branch of knowledge".
1.6.2 Research Methods
Research methods may be understood as those methods/techniques that are used for
conduction of research. All those methods which are used by the researcher during the course
of studying his research problem are termed as research methods. Keeping in view, the
research methods can be put into following three groups:
In the first group we include those methods which are concerned with the collection
of data. These methods will be used where the data already available are sufficient to
arrive at the required solution.
The second group consists of those statistical techniques which are used to establish
relationships between the data and the unknown.
The third group consists of those methods which are used to evaluate the accuracy of
the obtained results.
1.6.3 Research Design
Research design is simply the framework or plan for a study, used as a guide in collecting and
analyzing data.
The function of research design is to provide for the collection of relevant evidences with
minimal expenditure of efforts, time and money.
1.6.4 Type of Research
1. Analytical research: -The
type of research under present is an analytical research.
In analytical research; we use tact's or information already available, and analyze
these to make a critical evaluation of the material.
2. Exploratory Research:-The major emphasis in exploratory Research design is on
discovery of ideas and insights.

12

3. Descriptive Research:-The descriptive research design study is typically

concerned with determining the frequency with w2hich something occurs or the
relationship between two variables.
1.6.5 Sample Design
A sample design is a definite plan determined before any data is actually collected for
obtaining a sample. Researcher must select a sample design, which should be reliable and
appropriate for this report.
1.7 Collection of Data
There are several ways of collecting the appropriate data which differ considerably in context
of money, cost, time and other sources at the disposable of the searcher.
There are two types of data
Primary data
Secondary data
1.7.1 Primary Data
Primary data are those which are collected afresh and for the first time, and thus happen to be
original in character. In case of descriptive research, researcher performs survey whether
sample survey or census survey, thus we obtain primary data either through
Observation
Direct communication with respondent
Personal interview
1.7.2 Secondary Data
Secondary data are those which have already been collected by someone else and have
already been passed through statistical process. It is analyzed by different sources these
sources are as follows:

Corporate magazine

Manuals of various companies

Books, journals, newspaper

Employment exchange

13

In this project report, both types of data have been used. Mainly, secondary data is used such
as annual reports of last two years of Radico Khaitan.
The secondary data is also collected from financial statement, books of national and
international authors as well as from the internet.
1.8 Chapter Scheme
Chapter 1 deals with the introduction, needs, review literature, scope, objective, research
methodology, collection of data and limitations used in study.
Chapter 2 is dedicated to radico khaitan a brief-profile, the brand story, international link,
strong financials, organisation structure, management, division of the company, board of
directors, radicos core value, focus on customer, excellence, respect for people, innovation,
corporate governance, corporate social responsibility program me hunar, environment
friendly, future strategy and growth, Rampur distillery, capacity, effluent treatment plant, cogeneration plant, backward integration, own bottling units, strategic bottling units, north, east,
south, west, corporate service.
Chapter 3 includes working capital management in radico khaitan ltd, managing and
measuring liquidity, operating and conversion cycles, managing the case position, examples
in case inflows and outflows, managing case, investing short-term funds, yields on short-term
securities, managing accounts receivable, evaluating the credit function, evaluating inventory
management, managing payable, balance sheet of Radico Khaitan Ltd, profit and loss account
of Radico Khaitan Ltd.
Chapter 4 focuses on data analysis and interpretations, current ratio, quick ratio, case ratio,
activity ratios, inventory turnover ratio, debtors turnover ratio, average collection period,
working capital turnover ratio, profitability ratios, net profit ratio, long term solvency ratios,
debt equity ratio.
Chapter 5 deals with findings, suggestions, recommendation, conclusion, bibliography.
1.9 Limitations of the Study
We cannot do comparisons with other companies unless and until we have the
data of other companies on the same subject.
Only the printed data about the company will be available and not the back
end details.
14

Future plans of the company will not be disclosed to the trainees.

Lastly, due to shortage of time it is not possible to cover all the factors and
details regarding the subject of study.
The latest financial data could not be reported as the companys websites have
not been updated.

Chapter-2

2. RADICO KHAITAN-A BREIF PROFILE

15

From evoking mysteries to awakening untamed desires; from pioneering possibilities to

molding values, Radico continues to produce a kaleidoscope of time-honored brands, inspired
by innovation of all forms and shapes. Dauntless, legendary and valued, Radico Khaitan once
again emerges a true virtuoso, creating an exciting invention that blends passion and
perfection into a rich aesthetic experience.
Radico Khaitan is one of India's oldest and largest liquor manufacturers. Formerly known as
Rampur Distillery, which was established in 1943. It was only in 1999, that Radico decided to
launch and market its own brands, thereby embarking on a period of phenomenal growth. To
further boost its production capacity of bottled and branded products, the company has tied
up with bottling units in various parts of the country.

2.1 The Brand Story

Radico Khaitan Ltd today has three millionaire brands in its portfolio. Radico's flagship
brand, 8 PM Whisky, launched in 1999, was a runaway success. In the first year alone, it sold
one million cases - a record for any Indian or foreign brand operating in India. This also made
it the first brand in the liquor industry to make it to the Limca Book of Records.
Drinks International, the acclaimed international liquor magazine has rated 8 PM whisky as
the fastest growing whisky in the world in the regional category (2004-05). The other
millionaire brands are: Contessa Rum has won the prestigious Monde Selection award for its
overall quality for the past three executive years.
16

It has a large market share in the defense market... Old Admiral Brandy has also been rated
by Drinks International as the fastest growing Brandy in the world in the regional category
(2004-05 and 2005-06) also it has won the Monde Selection award for its overall quality in
2004-05. Today, Radico Khaitan has brands that straddle almost every market segment whisky, rum, brandy, vodka & gin - and price category. Its fine value have resonated blends,
consistent quality, distinctive packaging and superior with customers.
2.2 The International Link
In a significant move aimed at catapulting the Indian liquor industry to international
standards, Radico Khaitan set up its international division - Radico International - to
distribute and market some of the world's best-known liquor brands, including Wines from
Ernest & Julio Gallo (makers of the world's largest-selling wine, Carlo Rossi), Famous
Grouse Whisky (from Highland Distillers).
2.3 Strong Financials
Radico Khaitan is not just a company of great brands; it is a company of great financials. The
equity shares of the company are quoted on the Mumbai and National Stock Exchanges, and
the company has more than 35,000 shareholders. It is the most profitable company in the
domestic liquor industry.

2.4 Organisation Structure

17

Managing Director

Director

President
Engineering

President
Production

President
Finance

President
HR

GM

GM

GM

GM

DGM

DGM

DGM

DGM

2.4(I) Management
Dr. Lalit Khaitan
18

Chairman & Managing Director

(Radico Khaitan Ltd.)
A veteran of the Indian liquor industry (over 45
years), Dr. Lalit Khaitan oversees the entire business
of Radico Khaitan. He has been instrumental in
improving quality standards and seeking and
achieving

customer

satisfaction,

leading

to

substantial growth in sales and revenues, and

increased market shares.
Dr. Khaitan has been widely recognized for his
contribution to the liquor industry. He has been
associated the-scenes player to a Rs. 995 crore
company, the most profitable in its sector, and a
sought-after partner by leading international liquor
brands seeking to enter the Indian market. His
unique management style has helped maintain Radico as an open, ethical and transparent
organization with a number of developmental projects, has represented India with several
international delegations, and is involved in social & educational activities across India. He is
currently:
Chairman, U.P. Committee of PHD Chamber of Commerce and Industry.
Member, Managing Committee, ASSOCHAM.
Member, Managing Committee, All India Distillers Association.
Member, Managing Committee, U.P. Distillers Association.
Trustee, Khaitan Public School, Noida.

Mr. Abhishek Khaitan

19

Managing Director (Radico Khaitan Ltd.)

Mr. Abhishek Khaitan is a Bachelor of Engineering
(Industrial Production) from Bangalore, and has done
a Managerial Finance & Managerial accounting
course at Harvard, USA.
He joined Radico Khaitan in 1997, and supervised
the establishment of the company's Marketing
Division in the same year. The first brand to be
launched by the division, 8 PM Whisky, was a
runaway success. In the first year alone, it sold one
million cases - a record for any Indian or foreign
brand operating in India. This also made it the first
brand in the liquor industry to make it to the Limca
Book of Records.
Under Abhishek Khaitan's leadership, Radico Khaitan's brand portfolio is wide and deep,
with brands that straddle almost every market segment, taste preference and price category.
To recognize Mr. Abhishek Khaitan's contribution to Indian Industry, Economic Development
& Research Association bestowed the Bhartiya Udyog Ratan Award on him. The World
Economic Progress Society has honored him with the National
2.4(II) Division of the Company
Mr. Dilip K. Bantiya (CFO)
Mr. Bantiya oversees the financial affairs of Radico Khaitan. He has been associated with the
company since 1991.
A Chartered Accountant by profession, Mr. Bantiya has a vast and rich career spanning more
than 40 years. He is a member of the All India Management Association.

Mr. K.P. Singh (Director - Operations)

20

Mr. Singh, whole time Director, oversees Radico Khaitan's operations, and heads its' distillery
unit at Rampur. He has been associated with the company for over a decade.
Mr. Singh is a qualified technocrat with over 30 years of experience in the liquor industry.
Mr. Raju Vaziraney (President - Sales & Marketing)
Mr. Vaziraney oversees Radico Khaitan's Civil Marketing and Difference Marketing Brands
Divisions; he also handles the country liquor brands of the company.
Mr. Vaziraney has a Masters degree in Economics, and Diplomas in Sales & Marketing in
Corporate Law and Business Management. He has about 15 years of experience in sales in
the liquor industry.
Mr. K.S. Raju (Executive Vice President - Manufacturing & Operations)
Mr. Raju oversees the operations of all Radico Khaitan's strategic tie-up bottling units and
Radico's own bottling units. Mr. Raju has a Masters degree in Commerce from Andhra
University, and a Diploma in Management from All India Institute of Management. He has
over 21 years of experience in the liquor industry.
Mr. Sanjeev Bamba (Executive- Vice President- Exports & IBD)
Mr. Bamba oversees export of Radico's brands to various markets and also heads the
International brands divisions where Radico has marketing & distribution tie-up with some of
the liquor majors of the world.
Mr. Bamba is a qualified Chartered Accountant and today has a vast experience of 15 years in
varied sectors.

21

2.5 Board of Directors

Dr. Lalit Khaitan
Chairman & Managing Director
(Radico Khaitan Ltd.)
An eminent industrialist, Dr. Khaitan has been at the helm of
affairs of the Company for more than 25 years. He is on the
Managing Committee of a number of associations, including the
PHD Chamber of Commerce & Industry, ASSOCHAM, All
India Distillers Association, U.P. Distillers Association and
Confederation of Indian Industry.
During his illustrious career Dr. Khaitan has won several awards in recognition of his
services. These include " 'Indira Gandhi National Unity Award', instituted by All India
National Unity Conference, presented by the Ex-President of India, Giani Zail Singh" 'Vijay
Ratna Award', instituted by the International Friendship Society of India, presented by the
then Prime Minister of India, Shri Chandra Sekhar "National Builder of Eminence in the
Nineties' award, instituted by the International Business Council.
Mr. Abhishek Khaitan
Managing Director,(Radico Khaitan Ltd.)
Mr. Khaitan has a Bachelors Degree in Engineering in Industrial
Production and qualifications in Managerial Finance and
Managerial Accounting an alumnus of Harvard University,
U.S.A. He is a young and talented industrialist, and has been
responsible for the exponential growth of the Company.
Mr. Karna Singh Mehta
Director,(Radico Khaitan Ltd.)
Managing Partner, S.S. Kothari & Co. (A Leading Firm Of
Chartered Accountants)
22

Mr. Mehta is a leading Chartered Accountant, with vast and rich experience in the field of
Finance and Accounting. He is on the Board of Directors of a number of leading Indian
companies. He is also a Member of the managing committees of several associations,
including PHD Chamber of Commerce & Industry.
Mr. Ashutosh Patra
Director,(Radico Khaitan Ltd.)
Managing Partner, O.P. Khaitan & Co. (A Leading Law Firm)
Mr. Patra has over 25 years of experience in the legal field. He
is an eminent Supreme Court lawyer and a leading legal expert.

Mr. K.P. Singh

Whole Time Director Designated As President (Operations),
Radico Khaitan Ltd.
Mr. Singh, a qualified technocrat, has over 30 years of
experience in the liquor industry and has been associated with
Radico Khaitan Ltd. for over a decade. He oversees the
operations of the Company, and heads its Distillery Unit at
Rampur.
Mr. Sanjay Jalan
Director,(Radico Khaitan Ltd.)
Mr. Jalan, a practicing Chartered Accountant, has over 15 years of
experience in Finance and Accounting, and is a Director in a
number of companies.
Mr. Raghupati Singhania
Director,(Radico Khaitan Ltd.) &
Managing Director,(J.K Industries Ltd.)
23

Mr. Singhania, an eminent industrialist, is the Managing Director of J.K. Industries Ltd. He is
also a Director in many other companies of the J.K Group, including J.K. Corp Ltd., Vikrant
Tyres Ltd., and J.K. Drugs and Pharmaceuticals Ltd.

Mr. Amit Burman

Director,(Radico Khaitan Ltd.) &
Executive Director, (Dabur India Ltd.)
Mr. Burman is an eminent industrialist and Executive Director,
Dabur India Ltd. An alumnus of Leigh and Columbia
Universities, U.S.A., and the University of Cambridge, England,
he has a Masters degree in Industrial Engineering and a Masters
degree in Business Administration. He is on the Board of
Directors of a number of leading Indian companies.

2.6 Brands
8 Pm Whisky. Since its launch in 1999, backed by fine product quality, superior packaging
and high-recall advertising, it has been a runaway success. In the first year alone, it sold one
million cases - a record for any Indian or foreign brand operating in India. This also made it
24

the first brand in the liquor industry to make it to the Limca book of records.
Our flagship brand 8PM has been launched as new 8 PM with a superior brand experience.
Made of quality grains, new 8 PM extended itself to bring lavishness and enjoyment. All this
has led the brand to explore different dimensions of its core promise- that.

Sizes available
Domestic

750 ml, 375 ml, 180 ml

International

750 ml, 375 ml, 180 ml, 90ml

8 PM Royale Whisky. Which extends the 8 PM brand franchise to the prestige semipremium whisky segment, is made with Indian spirits and scotch with matured malt spirits?
The mellow taste comes from years of being matured in wooden casks in meticulously
guarded environs.

25

Sizes available
Domestic

750 ml, 375 ml, 180 ml

International

1000 ml (pet bottle), 750 ml, 375 ml, 180 ml

After Dark. The night has different connotations for different people; the night unfolds
differently and brings a unique world of desire, adventure and excitement. In fact, its where
the fun and action begins. After Dark, the brand here plays the role of getting people together,
adding energy and spontaneity to the evening, giving people a world where the party never
stops.
After Dark Whisky was rewarded with the silver medal at the monde selection quality award
2011.

Sizes available
Domestic

750 ml, 375 ml, 180 ml

International

750 ml, 375 ml, 180 ml

Royal Whytehall Whisky

Whytehall. Classic Deluxe Whisky is a distinguished blend of aged scotch malts and the
finest Indian spirits, skilfully blended to give a rich, warm, full-bodied whisky with a graceful
after note that lingers. Truly a classic.
26

Whytehall Whisky became a part of our brand portfolio after Radico bought out the stake of
its erstwhile joint venture partner, Bacardi, in Whytehall India Limited. Since then it has
undergone a change in packaging (acquiring a mono-carton and elegant bottle) and
positioning ("Always Perfect"), and grown to become a half million-case brand.
Whytehall Whisky was rewarded with silver medal at the international Wine & Spirit
competition 2007 held at U.K
Whytehall Whisky has won a gold medal at Monde Selection 2008 (Belgium) for overall
quality

Sizes available
Domestic

750 ml, 375 ml, 180 ml

International

750 ml, 375 ml, 180 ml

Rum
Contessa Rum. Enjoys a 25% market share in the defense segment and has won the
prestigious medal at the Monde Selection 2008 in Brussels for its overall quality. It is in the
regular segment. This is also a millionaire brand of Radico.
Contessa Rum was rewarded with Bronze medal at the International Wine & Spirit
Competition 2007 held at U.K.

27

Sizes available
Domestic

750 ml, 375 ml, 180 ml

International

750 ml, 700 ml, 375 ml, 180 ml

8 PM Bermuda Rum. Is an extension of our flagship whisky brand, 8 PM, into the rum
segment 8 PM is known for delivering quality and value, and these brand values find
expression in 8 PM Bermuda Rum too. As the name suggests, 8 PM Bermuda Rum is a
Caribbean rum, warm, full-bodied and dark, blended to perfection and matured in old oak
casks.
8 PM Bermuda Rum delivers the classic Caribbean experience in every leisurely sip. It
recently won the silver medal at the prestigious Monde selection award.

28

Sizes available
Domestic

1000 ml, 750 ml, 500 ml, 375 ml, 180 ml

International

750 ml, 375 ml, 180 ml

Brandy
Old Admiral Brandy. The phenomenally successful Old Admiral Brandy is our third
million-case brand. In spite of India being a predominantly whisky-drinking country, Old
Admiral Brandy has received an overwhelming response from trade channel and consumers
alike, to record exponential growth, year-on-year.
Old Admiral Brandy has won a silver medal at Monde Selection 2008 (Belgium) for overall
quality.

29

Sizes available
Domestic

1000 ml, 750 ml, 375 ml, 180 ml

International

750 ml, 375 ml, 180 ml

8 PM Excellency brandy. Carries the 8 PM brand umbrella further into the brandy segment.
Its smooth taste bears testimony to the fact that it is matured in oaken casks for ages before
being bottled for your enjoyment.
8 PM Excellency Brandy was rewarded with the Bronze Medal at the International Spirits
Challenge 2007 held at U.K
8 PM Excellency Brandy was rewarded with Silver (Best in Class) medal at the International
Wine & Spirit Competition 2007 held at U.K

30

Sizes available
Domestic

750 ml, 375 ml, 180 ml

International

750 ml, 375 ml, 180 ml

Vodka
Magic Moments Vodka. Was launched in the deluxe vodka category in November 2005.It is
today the fastest growing brand in its category. M2 has succeeded in creating a new price
point. The packaging was an instant hit- frosted bottle with a unique guitar shaped glass
window, a feature not seen in any other Indian vodka.
M2 had a brand new packaging launch in Sept 2007.There was direct printing on the bottle
again a feature that does not exist in any Indian brand.
M2, which is also a millionaire brand, has recently won accolades in the international arena
by getting the gold medal at Monde Selection 2010.

31

Sizes available
Domestic

750 ml, 375 ml, 180 ml

International

750 ml, 375 ml, 180 ml, 90ml

Magic Moments vodka. Has a variant called Remix flavored vodka. Remix has 6 flavors
orange, green apple, lemon, lemongrass & ginger, raspberry and chocolate. The new look and
variants have invoked an extremely positive response.
All the flavors of Magic Moments Remix Vodka have recently won various awards in the
International Spirits Challenge and Monde Selection Award 2011.

Sizes available
Domestic

750 ml, 375 ml, 180 ml

International

750 ml, 375 ml, 180 ml

2.7 Radico's Core Values

32

Radico's Core Values are aimed at developing a customer-focused, high-performance

organization, which creates value for all its stakeholders.
2.8 Focus on Customer
Radico Khaitan believes that customer focus is very important. They give importance to
deliver both value & quality to the customer.
2.9 Excellence
Radico will strive for excellence in whatever we do. Radico will take the right path to do
whatever we do and excel in the same.
2.10 Respect for People
Radico will value differences in individual perspectives. Radico want individuals to dream,
create and experiment in pursuit of opportunities and achieve leadership through teamwork.
2.11 Innovation
Radico will constantly innovate and strive to better our processes, products, services and
management practices.
2.12 Corporate Governance
Corporate Governance at Radico means the framework to encourage the efficient use of
resources and equally to require accountability for the stewardship of those resources. The
aim is to align as nearly as possible the interests of individuals, corporations and society.
Ernst & Young are the internal auditors and strategic advisors and help to improve
its operational efficiencies and control procedures.
Board of Directors consisting of eminent independent professionals.
Strict adherence to the accounting standards lay down by the Institute of Chartered
Accountants of India.
Special attention being paid to the investors relations. Regular communication to
the investors about the business developments and important vents impacting the
operations.
33

 Strict compliance with the requirement of Stock Exchanges, Securities and

Exchange Board of India and other statutory authorities.
Liberal disclosures in the balance sheet over and above those required by the
regulatory authorities.
2.13 Corporate Social Responsibility Program me Hunar
In accordance with Radico's mission to work towards the up-liftman of local artisans and to
promote the U.P. handicraft, Zardozi and Chikan work it had launched 'Radico- Chikankari
Aur Zardozi Pratiyogita' in association with the Indian Academy of Art & Culture, U.P.
The competition was organized to bring out the creativity of the artisans and to look for
young talent in the field of Chikankari & Zardozi. The event was promoted through mobile
vans, pamphlet distribution in the areas where the artisans live. There were two levels of
judging eminent personalities from Luc know judged the first level and in the second level
Mrs. Jaya Prada, Mrs. Kiran Khaitan, Mrs. Sucheta Merh & Mr. Swapan both designers from
Kolkata judged the first three winners.
The artisans were awarded with cash prizes.
The artisans have been empanelled by Radico Khaitan Ltd to form a group called "Hunar.
To get employment for the artisans is the cause towards which the group Hunar is working.
2.14 Environment Friendly
Radico Khaitan Ltd is an environment friendly company and follows all the norms for its
production facility at Rampur. It has also been awarded the ISO 9001 certification for the
Rampur distillery.
2.15 Future Strategy and Growth
Liquor Industry in India is growing around 12% annually for last 5 years with major growth
coming in the white spirits segment and in the category of semi premium space.
Company plans to capture significant volumes into the high liquor consuming markets like
Kerala, Tamil Nadu, and Andhra Pradesh and also to increase its market share in the other
34

existing markets. Company aims to achieve sales volume of more than 20 million cases per
year in next 2 years.
Company also plans to launch new Brands in premium/semi premium space to capitalize on
the rapidly growing segment. Its directors are fully confident that execution of these
initiatives will put the company in high growth mode.
2.16 Rampur Distillery
Rampur Distillery is one of the largest distilleries in India and a leading manufacturer of
Extra Neutral Alcohol (used in manufacturing Indian Made foreign Liquor) it also
manufacturers Rectified Spirit (used in manufacturing of lower segments Country Liquor)
and manufacturing of Anhydrous Alcohol or Ethanol or Gasohol (used in Petrol Mixing) and
the recent addition of grain distillery . Today with a production capacity of 60 million liters p.
a and with the recent addition of the grain distillery which has taken the capacity up to 90
million lit p.a. it is one of the largest distilleries in the country The Unit has a series of firsts
to its credit:
It is the first Indian distillery to obtain ISO 9001:2000 certifications. It has achieved capacity
utilization of over 100% in the alcohol plant. It is the first environment-friendly distillery in
the country.

2.17 Capacity
Molasses Distillery 60 million liters per annum.
35

Grain Distillery 30 million liters per annum.

Malt Distillery 720 thousand liters per annum.
2.18 Effluent Treatment Plant
The effluent Treatment Facility in Rampur Distillery is unique in nature when compared
among and in the Industry. The Distillery complies with Zero Discharge concept set up by
CPCB. The treatment has varied by products, which not only improves operational stability
of the plants but also adds on to company's profitability. Primary Treatment of the Effluent
yields Bio Gas, which is used as fuel in Cogen Boiler to generate steam and then Power
through a backpressure Turbine. The backpressure steam is used again in the Distillation
Plant to produce Extra Neutral Alcohol and Rectified Spirit.
2.19 Environmentally Friendly
Meeting out 100% Pollution Control norms, the Treated Effluent is not discharged outside
and in turn is mixed and cured with organic mass like Press Mud of Sugar Mills and suitable
organic manures to manufacture Bio Manure or Bio Compost, a bio fertilizer used
successfully in growing the crop of sugar canes etc.
2.20 Co-Generation Plant
The cogeneration plant of Rampur Distillery consist of 26 MT capacity India's first stand
alone Bio Gas fired steam boiler and 2 MW Turbine Generator in tandem to make Radico
Khaitan self reliant on its requirement for power for its normal operation.
2.21 Backward Integration
The very first backward integration project has come in the form of setting up a fully
automatic 750 ml Kidney shape PET bottle manufacturing plant in low cost and tax benefited
area like Uttarakhand. The unit started with production rate of 85 lacs bottle per year in
October 2004 and is now geared up to produce 255 lacs PET bottles to cater Radico's own
captive consumption of approx. 150 lacs bottle per year and rest is being sold to outside
clients in similar businesses. The unit has not only eliminated the pressure of PET bottle

36

suppliers but has also provided a kind of diversified manufacturing base for future business
exploration.
2.22 Own Bottling Units
Rampur Distillery has 14 state-of-the-art bottling lines, including those imported from Italy,
equipped with tunnel bottle washing, filling, sealing and labeling machines with a capacity to
produce 1500 cases (1 case = 12 bottles of 750 ml each) of liquor in a single shift of
operation. Line capacities vary from 750 cases to 3,000 cases in a shift. To keep pace with the
growing demand, Radico Khaitan has significantly increased its bottling capacity by
acquiring/setting up bottling plants in the states of Rampur Distillery,Rampur (Uttar Pradesh),
Whytehall (India) Ltd., Rampur (Uttar Pradesh), Radico Khaitan Ltd., Reengus (Rajasthan),
Radico Khaitan Ltd., (Uttarakhand)and Radico Khaitan Ltd., Hyderabad(Andhra Pradesh).
2.23 Strategic Bottling Units
Radico Khaitan Ltd is working continuously towards increasing its reach through the
strategic bottling units across the country. The focus underlines comprehensive quality
control and enhanced market penetration. Strategic Bottling Units throughout India.
2.24 North
N V Distilleries & Breweries Ltd., (Punjab)
Himalayan Gold Distilleries (Himachal Pradesh)
Oakland Bottlers (P) Ltd. (Jammu & Kashmir)
M/s Rajasthan Liquors Pvt Ltd Detabassi (Punjab)
M/s NID Jammu

2.25 East
Goodhost Liquors (P) Ltd., Patna, (Bihar)
37

M/s Prashant Impex Dankuni, Kolkata, (West Bengal)

Seven Sisters Trade & Distilleries (P) Ltd., Guwahati.(Assam)
Bacchus Bottling (P) Ltd., (Orissa)
United Brothers Distilleries (P) Ltd., (Arunachal Pradesh)
Gemini Distilleries (Jharkhand) (P) Ltd., Ranchi, (Jharkhand)
M/s Uno-Koti Bottling Tripura
M/s North-East Bottling Shillong Meghalaya (To be closed in 2008-09)
2.26 South
Kamal Wineries, Hyderabad (Andhra Pradesh)
M/s Gauthami Agro Eluru (Andhra Pradesh)
Ravikumar Distilleries (Pondicherry)
United Distillery, Calicut, (Kerala)
Sri Venkateswara Distilleries, Bangalore, (Karnataka)
BT & FC (P) Ltd., Bangalore, (Karnataka)
Midas Golden, Chennai, (Tamil Nadu)
M/S Empee Distilleries Chennai
M/S Safil Chennai (Being Started In 2008-09).
Drdpl (Diageo-Radico) M/S Chamundi Bottling Bangalore.
2.27 West
M/S Bmss Shripur (Maharashtra).

38

Welcome Distilleries, Bilaspur. (Chattisgarh)

Silver Start Distillery, (Daman)
Gwalior Distillers, Gwalior (Madhya Pradesh)
Drdpl (Diageo-Radico) M/S Aabpl-Barwaha, Indore (Madhya Pradesh)
2.28 Corporate Services
Corporate services are activities that combine or consolidate certain enter pries wide needed
support services, provided based on specialized knowledge, best practices, and technology to
serve internal (and sometime external) customers and business partners. In the United
Kingdom, the public audit agencies produced a report in may 2007 called value for money
in public sector corporate services this provides performance indicators in five categories:
Human Resources, Marketing, Sales, Accounts Finance, Production
2.28.1 Human Resources
Radico Khaitan believes that the growth of a company depends on the collective efforts of its
employees. The Human Resources Department seeks to create an environment that fosters the
emergence of empowered leaders. They hire people who have the fire to grow, the potential
to lead and the zeal to excel. All new hires undergo a 7-day induction and familiarization
program.

39

2.28.2 Marketing
In the short span of time, Radico Khaitan has been able to make the transition from being a
manufacturer of Extra Neutral Alcohol to being a company with a portfolio of hugely
successful brands. Their understanding of market demands and ability to satisfy consumer
needs has been responsible for this. Consistently superior quality, a wide range of products,
innovative packaging, pricing to suit all pockets, a nation-wide distribution network that
covers 95% of retail points, clubs and bars in the country, effective advertising, and popular
events and promotions. All these elements go to making up Radico Khaitan's winning
marketing mix.
2.28.3 Sales
Radico Khaitans young and enthusiastic sales force services retail outlets across the country,
understanding requirements and fulfilling them, thereby developing enduring relationships.
The Sales team comprises professionals with vast domain expertise, years of experience in
the liquor industry and a deep understanding of varied markets.

40

2.28.4 Accounts- Finance

Radico Khaitan Ltd has been continuously showing growth over previous years and
registering healthy profits. This has been made possible through the steps taken by the
Finance department like bringing down the cost of borrowings substantially. The Efforts of
the finance department has made Radico one of the best prospects for timely repayment of
debts and providing the highest safety of funds for lenders. The department also has excellent
financial management with strong fundamentals in the short and medium term.
2.28.5 Production
The Production Department is responsible for operations in Radico Khaitan's bottling units. It
works towards the smooth production and delivery of all the Radico Khaitan brands as per
market needs.

41

Chapter-3

3. WORKING CAPITAL MANAGEMENT IN RADICO KHAITAN LTD.

It describes about how the company manages its working capital and the various steps that
are required in the management of working capital.
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to
fund operations, reinvest and meet capital requirements and payments. Understanding a
company's cash flow health is essential to making investment decisions. A good way to judge
a company's cash flow prospects is to look at its working capital management (WCM).
Working capital refers to the cash a business requires for day-to-day operations or, more
specifically, for financing the conversion of raw materials into finished goods, which the
company sells for payment. Among the most important items of working capital are levels of
inventory, accounts receivable, and accounts payable. Analysts look at these items for signs
of a company's efficiency and financial strength.
The working capital is an important yardstick to measure the companys operational and
financial efficiency. Any company should have a right amount of cash and lines of credit for
its business needs at all times.
This project describes how the management of working capital takes place at
3.1 Managing and Measuring Liquidity

Liquidity is the ability of the company to satisfy its short-term obligations using assets

that are readily converted into cash.

Liquidity management is the ability of the company to generate cash when and where

needed.
Liquidity management requires addressing drags and pulls on liquidity.
Drags on liquidity are forces that delay the collection of cash, such as slow payments

by customers and obsolete inventory.

Pulls on liquidity are decisions that result in paying cash too soon, such as paying

trade credit early or a bank reducing a line of credit.

Sources of liquidity:
Primary sources of liquidity
- Ready cash balances (cash and cash equivalents)
- Short-term funds (short-term financing, such as trade credit and bank loans)
- Cash flow management (for example, getting customers payments deposited
quickly)
Secondary sources of liquidity
- Renegotiating debt contracts
42

Selling assets
Filing for bankruptcy protection and reorganizing.

3.2 Operating and Cash Conversion Cycles

The operating cycle is the length of time it takes a companys investment in inventory

to be collected in cash from customers.

The net operating cycle (or the cash conversion cycle) is the length of time it takes for
a companys investment in inventory to generate cash, considering that some or all of

the inventory is purchased using credit.

The length of the companys operating and cash conversion cycles is a factor that

determines how much liquidity a company needs.

The longer the cycle, the greater the companys need for liquidity.

3.2.1 Operating Circle

43

3.2.2Cash Conversion Cycle

3.3. Managing the Cash Position

Management of the cash position of a company has a goal of maintaining positive

cash balances throughout the day.

Forecasting short-term cash flows is difficult because of outside, unpredictable

influences (e.g., the general economy).

Companies tend to maintain a minimum balance of cash (a target cash balance) to

protect against a negative cash balance.

3.4. Examples of Cash Inflows and Outflows

Theire are two examples of Cash Inflows and Outlows.
3.4.1. Inflows

Receipts from operations, broken down by operating unit, departments, etc.

Fund transfers from subsidiaries, joint ventures, third parties

Maturing investments

Debt proceeds (short and long term)

44

Other income items (interest, etc.)

Tax refunds

3.4.2. Outflows

Payables and payroll disbursements, broken down by operating unit, departments, etc.

Fund transfers to subsidiaries

Investments made

Debt repayments

Interest and dividend payments

Tax payments

3.5 .Managing Cash

Managers use cash forecasting systems to estimate the flow (amount and timing) of
receipts and disbursements.

Managers monitor cash uses and levels.

-

They keep track of cash balances and flows at different locations.

A companys cash management policies include

-

Investment of cash in excess of day-to-day needs and

Short-term sources of borrowing.

Other influences on cash flows:

-

Capital expenditures

Mergers and acquisitions

Disposition of assets
3.6 Investing Short-Term Funds

Short-term investments are temporary stores of funds.

45

Examples include U.S. Treasury Bills, Eurodollar time deposits, repurchase

agreements, commercial paper, and money market mutual funds.

Considerations:
-

Liquidity

Maturity

Credit risk

Yield

Requirement of collateral

3.7 Yields on Short-Term Securities

The nominal rate is the stated rate of interest, based on the face value of the security.

The yield is the actual return on the investment if held to maturity.

There are different conventions for stating a yield:

3.8 Short-Term Investment Strategies

46

3.9 Short-Term Investment Policy

3.10 Managing Accounts Receivable

Objectives in managing accounts receivable:

-

Process and maintain records efficiently.

Control accuracy and security of accounts receivable records.

Collect on accounts and coordinate with treasury management.

Coordinate and communicate with credit managers.

Prepare performance measurement reports.

Companies may use a captive finance subsidiary to centralize the accounts receivable
functions and provide financing for the companys sales.

3.11 Evaluating the Credit Function

Consider the terms of credit given to customers:

-

Ordinary: Net days or, if a discount for paying within a period,

discount/discount period, net days (for example, 2/10, net 30).
47

Cash before delivery (CBD): Payment before delivery is scheduled.

Cash on delivery (COD): Payment made at the time of delivery.

Bill-to-bill: Prior bill must be paid before next delivery.

Monthly billing: Similar to ordinary, but the net days are the end of the month.

Consider the method of credit evaluation that the company uses:

-

Companies may use a credit-scoring model to make decisions of whether to

extend credit, based on characteristics of the customer and prior experience
with extending credit to the customer.

3.12 Evaluating Inventory Management

Measures
-

Inventory turnover ratio.

Number of days of inventory

When comparing turnover and number of days of inventory among companies, the analyst
should consider the different product mixes among companies.
3.13 Managing Accounts Payable

Accounts payable arise from trade credit and are a spontaneous form of credit.

Credit terms may vary among industries and among companies, although these tend to
be similar within an industry because of competitive pressures.

Factors to consider:
-

Companys centralization of the financial function

Number, size, and location of vendors

Trade credit and the cost of alternative forms of short-term financing

Control of disbursement float (i.e., amount paid but not yet credited to the
payers account)

Inventory management system

48

E-commerce and electronic data interchange (EDI), which is the customer-tobusiness payment connection through the internet

49

Chapter-4

4. DATA ANALYSIS AND INTERPRETATIONS

4.1 Current Ratio
Meaning- This ratio establishes a relationship between current assets and current liabilities. It
matches the total current assets of the firm against its current liabilities. The ideal current
ratio is also.
Current ratio = Current Assets/Current Liabilities
Year
Current Assets
Current Liabilities
Current Ratio

2011-2012
1,34,94,75,847
75,67,58,438
1.78

2013-2014
1,81,20,38,152
1,37,98,19,154
1.31

2015-2016
1,80,59,34,193
1,32,78,92,788
1.36

Interpretation
1. Ideal Current Ratio IS 2:1.
2. The current ratio has increased from 1.47 to 1.78 between the year 2015-2016 and
2013-2014. Then it decreased to 1.31 in the year 2006-2007 and then increased 1.36
in the year 2011-2012.
3. This shows that the short term liquidity of the company is not good.

4.2 Quick Ratio

50

The quick ratio is a financial ratio used to a company's liquidity. The quick ratio is also
known as the acid test ratio. The quick ratio compares the total amount of cash + marketable
securities + accounts receivable to the amount of current liabilities.
Quick Ratio = Quick Assets/Current Liabilities
Year
Quick Assets
Current Liabilities
Quick Ratio

2011-2012
81,29,79,812
75,67,58,438
1.07

2013-2014
1,05,02,99,837
1,37,98,19,154
0.76

2015-2016
1,04,40,61,085
1,32,78,92,788
0.79

Interpretation
1. The Ideal Quick Ratio IS 1:1
2. The quick ratio of the company has increased from 0.94 to1.07 between the year
2011-2012. Then decreased to 0.76 and0.79 in the year 2013-2014 and 2015-2016.
3. This means that the company cannot meet its short term obligations.

4.3 Cash Ratio

Cash ratio is the ratio of a companys total cash and cash equivalents to its current liabilities.
The metric calculates a companys ability to repay its short-term debt; this information is
51

useful to creditors when deciding how much debt, if any they would be willing to extent to
the asking party. The cash ratio is generally more conservative loot at a companys ability to
cover its liabilities than many other liquidity ratios because other assets, including accounts
receivable, are left out of the equation.
Cash Ratio = Cash and Bank/Current Liabilities
Year
Cash
Current Liabilities
Cash Ratio

2011-2012
2,94,45,561
75,67,58,438
0.039

2013-2014
4,62,40,483
1,37,98,19,154
0.033

2015-2016
4,49,26,777
1,32,78,92,788
0.034

Interpretation
1. The cash ratio has first increased from 0.032 to 0.039 between the year 2013-2012
and then decreased in the year 2013-2014 and then increased by 0.001 in 2015-2016.
2. This reveals that the cash position of the company is not sound.

4.4 Activity Ratios

This ratio are called Turnover Ratios since they indicate the speed with which the resources
are being turned into sales. These ratios are also termed as performance and activity ratios.
Highly turnover ratio better the use of capital or resources, of course, higher the turnover the
better the profitability ratio.
52

Inventory Turnover Ratio = Net Sales / Inventory

Year
Net Sales
Inventory
Inventory

Turnover

2011-2012
2,21,11,97,993
53,64,96,035
4.12

2013-2014
2,37,54,48,269
76,17,38,315
3.12

2015-2016
2,57,89,34,907
76,18,73,108
3.38

Ratio

Interpretation
1. This shows that the company is somehow efficient in generating the inventory into
sales.
2. The inventory turnover ratio has decreased from 4.75 to 3.12 between the years 20112012 and 2013-2014 and increased to 3.38 in 2015-2016.

4.5 Debtors Turnover Ratio

Debtors turnover ratio gives the number of times per year the debtors will turnover.
Average debtors = (opening debtors balance + closing balance)/2
Note: opening balance of this year is exactly the same as the closing balance of last year. So
look at for this if the opening balance is not given.
Debtors Turnover Ratio = Credit Sales/Average Debtors
Year

2011-2012

2013-2014
53

2015-2016

Sales
Debtors
Debtors Turnover

2,21,11,97,993
48,33,85,817
4.57

2,37,54,48,269
72,08,94,474
3.29

2,57,89,34,907
72,41,47,983
3.56

Ratio

Interpretation
1. The debtor turnover ratio has first increased from 4.12 to 4.57 between the year 20112012 and then decreased in the year 2013-2014 and then increased in 2015-2016.
2. This shows that the debtor management system is try to maintain their position.

4.6 Average Collection Period

The average collection period can be calculated as follows: 365 days in a year divided by the
accounts receivable turnover ratio. Assuming that a company has an accounts receivable
turnover ratio of 10 times per year, the average collection period is 36.5 days (365 divided by
10).
Average Collection Period = Number Of Working Days / Debtors Turnover Ratio
Year
Number of Working

2011-2012
365

2013-2014
365

Days
54

2015-2016
365

Debtors

Turnover

4.57

Ratio
Average

Collection

80 days

3.29
110 days

3.56
102 days

Period

Interpretation
1. The average collection period has decreased from 89 days to 80 days between the year
2011-2012 and then increased in the year 2013-2014 and again decreased in 20152016.
2. More the average collection period less efficient is the debtor management system.

4.7 Working Capital Turnover Ratio

The working capital turnover ratio is also referred to as net sales to working capital. It
indicates a company's effectiveness in using its working capital. The working capital turnover
ratio is calculated as follows: net annual sales divided by the average amount of working
capital during the same 12 month period.
Working Capital Turnover Ratio = Sales / Net Working Capital
Year
Sales
Net Working Capital
Working
Capital

2011-2012
2,21,11,97,993
59,27,17,409
3.73

2013-2014
2,37,54,48,269
43,22,18,998
5.50

Turnover Ratio
55

2015-2016
2,57,89,34,907
47,66,97,765
5.41

Interpretation
1. The working capital turnover ratio has first decreased from 5.32 to 3.73 between the
years 2011-2012 and then increased to 5.50 in the year 2013-2014 and then decreased
by 0.09 in the year 2015-2016.

4.8 Profitability Ratios

The main aim of a business concern is to earn profits. The profitability of a business is a
recognized criterion to judge the efficiency of a business. Profitability ratios measure
managements overall effectiveness. The following are the important profitability ratios:
Operating Profit Ratio = Operating Profit X 100
Sales
Year
Operating Profit
Sales
Operating
Profit

2011-2012
31,48,62,163
2,21,11,97,993
14.24

2013-2014
31,28,91,662
2,37,54,48,269
13.17

Ratio

56

2015-2016
32,99,64,549
2,57,89,34,907
12.79

Interpretation
1. The operating profit first increases to 14.24% in the year 2010-2011 and then
decreases to 13.17% and 12.79% in the year 2011-2012 and 2012-2013.
2.

This shows that the operating cost of the company has increased from 2013-2014 to
2015-2016.

4.9 Net Profit Ratio

This ratio established relationship between net profit and net sales. The main objective of this
ratio is to determine the overall efficiency of the business. Net profit ratio shows the
operational efficiency of the managerial inefficiency and excessive selling and distribution
expenses.
Net Profit Ratio = Net Profit After Tax X 100
Net Sales
Year
Net Profit After Tax
Net Sales
Net Profit Ratio

2011-2012
18,49,28,514
2,21,11,97,993
8.36

2013-2014
17,01,94,555
2,37,54,48,269
7.16

57

2015-2016
16,05,13,611
2,57,89,34,907
6.22

Interpretation
1. The net profit ratio first increases from 5.03 to 8.36 in the year 2012-2013 and 20132014 and then decreases to 7.16 in the year 2014-2015 and too decreasing in 20152016.
2. This reveals that the efficiency in manufacturing, administering and selling the
products is decreasing.

4.10 Long Term Solvency Ratios

It refers to the forms of capital of any business institution. It includes long term sources of
funds such as debentures, long-term debt, preference share capital and equity share capital
including reserve and surpluses. By the analysis of these ratios, creditors get the information
about the quantum of capital invested by proprietors as compared to their own investment.
Debt Equity Ratio = Outsiders Funds/Shareholders Funds
Year
Outsiders funds
Shareholders funds
Debt Equity Ratio

2011-2012
25,80,06,524
81,67,40,225
0.32

2013-2014
38,70,96,269
98,85,72,605
0.39

58

2015-2016
1,14,81,89,285
3,95,92,73,396
0.29

Interpretation
1. The debt equity ratio is decreasing which means that the companys dependence on
the external debt is decreasing.
2. This shows greater flexibility in the companys operation.

Chapter-5

5. FINDINGS, CONCLUSION AND SUGGESTIONS

5.1 Findings
On the basis of data analysis and interpretation following are the main findings of the study.
The study shows that the short term liquidity of the company is not good, and thus the
company is not able to meet its short term obligations.
This reveals that the cash position of the company is not sound.

59

 The study shows that the company is somehow efficient in generating the inventory
into sales.
It is found from the data analysis that the debtor management system is not efficient
and thus it is necessary to maintain it.
The study reveals that more the average collection period the less efficient is the
debtor management system.
The working capital turnover ratio has first decreased from 5.32 to 3.73 between the
years 2011-2012 and then increased to 5.50 in the year 2013-2014 and then decreased
by 0.09 in the year 2015-2016.
This shows that the operating cost of the company has been increased from 20132014 to 2015-2016.
This reveals that the efficiency in manufacturing, administering and selling the
products is decreasing.
And thus it shows greater flexibility in the companys operation.
From the above findings it can be concluded that the working capital management is
somehow efficient but there is a need of some reforms in it.

60

5.2 Suggestions
On the basis of main findings the researcher has furnished the following suitable suggestions
to overcome the problems associated with the working capital management of the company.

Management should make the proper use of inventory control techniques like
fixation of minimum, maximum and ordering levels for all the items for less blockage
of money.

The company should also adopt proper inventory control like ABC analysis
etc. This inventory system can make the inventory management more result oriented.
The EOQ should also follow in stores.

The company should train its work force properly, which would enable the
company to utilize its resources properly and in the interim help in minimizing
wastage, and hence result in the expansion of its market share.

Due to competition, prices are market driven and for earning more margin
company should give the more concentration on cost reduction by improving its
efficiency.

The investments of surplus funds made by the corporate office and the units
are not generally involved while taking decisions with regard to structure of
investment of surplus funds. The corporate office should involve the units to better
ascertain the future requirements of funds and accordingly the investments made in
different securities.

The company is losing its overseas customers due to decrease in exports so;
the sufficient amount of exports should the maintained.

Companys Average debtor collection period of company is 19 days.

Therefore, it would be the one of the positive point for company and company should
maintain it for future.
Above are the corrective measures which the company should take for the efficient
working capital management of the company.

61

5.3 Recommendation
The essence of effective working capital management is proper cash flow forecasting.
This should take into account the impact of unforeseen events, market cycles, loss of a
prime customer and actions by competitors. So, the effect of unforeseen demands of
working capital should be factored by company. This was one of its reasons for the
variation of its revised working capital projection from the earlier projection.

It pays to have contingency plans to tide over unexpected events. While marketleaders can manage uncertainty better, even other companies must have riskmanagement procedures. These must be based on objective and realistic view of the
role of working capital.

Addressing the issue of working capital on a corporate-wide basis has certain

advantages. Cash generated at one location can well be utilized at another. For this to
happen, information access, efficient banking channels, good linkages between
production and billing, internal systems to move cash and good treasury practices
should be in place.

An innovative approach, combining operational and financial skills and an allencompassing view of the companys operations will help in identifying and
implementing strategies that generate short-term cash. This can be achieved by having
the right set of executives who are responsible for setting targets and performance
levels. They could be then held accountable for delivering, encouraged to be
enterprising and to act as change agents.

62

5.4 Conclusions
By conducting the study about working capital management, I found out that working
capital management of Radico Khaitan is good. Radico Khaitan has sufficient funds to
meet its current obligation every time, which is due to sufficient profits and efficient
management of Radico Khaitan.
Raw material for all the units of Radico Khaitan purchased by corporate office in
bulk, which is a major problem for the company as it increases the inventory cost.
Company is cash rich but as there are expansion and diversification plans under the
pipeline, company is not utilizing these funds. For meeting the working capital needs
and capacity expansion needs, it has borrowed from banks.
Lack of advertisement can be considered to be a weak point for the Radico Khaitan.
The amount of stock is increasing per year, which is a good sign, as it would help
them in the tough competition coming ahead.
Firm profitability can be increase by shortening accounts receivables and inventory
periods.

Bibliography
Books and Journals
Anand, M. 2001. Working Capital performance of corporate India: An empirical
survey, Management & Accounting Research, Vol. 4(4), pp. 35-65.
Berryman, J. 1983. Small Business Failure and Bankruptcy: A survey of the
Literature, European Small Business Journal, 1(4), pp47-59.
Bhattacharya, H. 2001. Working Capital Management: Strategies and Techniques,
Prentice Hall, New Delhi.
63

 Grablowsky, B. J. 1976. Mismanagement of Accounts Receivable by Small

Business, Journal of Small Business, 14, pp.23-28.
Grablowsky, B. J. 1984. Financial Management of Inventory, Journal of Small
Business Management, July, pp. 59-65.
Shields, Patricia and Hassan Tajalli. 2006. Intermediate Theory: The Successful
Student Scholarship. Journal of Public Affairs Education. Vol. 12, No. 3. Pp. 313-334.
Magazines and Newspapers
Magazines
India Today
Weekly Economic
Newspapers
Times of India
Economics Times
Hindustan Times
Websites
1. http://en.wikipedia.org/wiki/workingcapital
2. http://www.workingcapital.com/
3. http://www.invatol.com/
4. http://www.workingcapitalreview.org/
5. http://www.effectiveworkingcapital.org/
6. http://www.radicokhaitan.org/

Appendices
Balance Sheet
Balance Sheet of Radico Khaitan

------------------- in Rs. Cr. ------------------Mar 16

Mar 15

Mar 14

Mar 13

Mar 12

12 mths

12 mths

12 mths

12 mths

12 mths

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital

26.61

26.61

26.61

26.58

26.54

Total Share Capital

26.61

26.61

26.61

26.58

26.54

Revaluation Reserves

8.42

8.71

9.09

9.16

9.22

Reserves and Surplus

869.44

793.97

745.37

692.46

659.50

Total Reserves and Surplus

877.86

802.68

754.46

701.61

668.72

64

Total Shareholders Funds

904.47

829.28

781.07

728.19

695.26

NON-CURRENT LIABILITIES
Long Term Borrowings (secured

197.58

326.02

423.58

413.98

338.35

74.35

71.52

69.53

58.83

56.33

1.14

0.71

1.22

0.04

1.83

7.18

5.89

5.22

4.34

4.02

280.25

404.13

499.55

477.18

400.53

loans)
Deferred Tax Liabilities [Net]
Other Long Term Liabilities
/Assets
Long Term Provisions
Total Non-Current Liabilities

CURRENT LIABILITIES
Short Term Burro

509.93

412.41

405.55

305.43

277.71

Trade Payables

149.01

125.54

127.56

117.25

118.73

Other Current Liabilities

255.37

274.40

163.34

154.00

151.61

46.46

41.93

38.64

20.99

15.28

960.78

854.27

735.09

597.67

563.33

2,145.50

2,087.69

2,015.71

1,803.05

1,659.14

Wings

Short Term Provisions

Total Current Liabilities
Total Capital And Liabilities

ASSETS
NON-CURRENT ASSETS
Tangible Assets

550.55

541.97

530.68

486.60

458.03

Intangible Assets

26.53

30.78

39.82

42.84

44.18

1.91

0.80

8.12

5.33

4.84

578.98

573.55

578.62

534.76

507.06

48.06

48.06

58.37

58.37

58.38

224.23

143.86

136.52

88.98

85.40

Other Non-Current Assets

1.95

2.23

2.02

1.49

0.72

Total Non-Current Assets

853.22

767.70

775.53

683.60

651.56

50.00

50.00

50.00

50.22

52.96

Capital Work-In-Progress
Fixed Assets
Non-Current Investments
Long Term Loans And Advances

CURRENT ASSETS
Current Investments

65

Inventories

232.70

213.03

210.31

184.95

177.45

Trade Receivables(Sundry

548.94

477.81

523.32

435.38

347.79

11.39

10.33

15.29

16.00

21.04

424.23

514.09

403.48

399.26

347.27

Other Current Assets

25.02

54.73

37.79

33.64

34.23

Total Current Assets

1,292.28

1,319.99

1,240.18

1,119.45

980.73

Total Assets

2,145.50

2,087.69

2,015.71

1,803.05

1,659.14

Debtors)
Cash And Cash Equivalents
Short Term Loans And Advances

3.12. Profit & Loss Account of Radico Company

Profit & Loss account of Radico Khaitan

------------------- in Rs. Cr. -------------------

Mar '16

Mar '15

Mar '14

Mar '13

Mar '12

3,603.87

3212.56

3,045.10

2,447.80

1,935.29

0.00

0.00

0.00

0.00

0.00

Less: Excise

2,060.78

1,724.17

1,593.41

1,230.52

837.52

Net Sales (Income from operations)

1,543.10

1,488.39

1,451.69

1,217.28

1,097.77

38.14

44.98

39.51

41.11

46.10

1,581.24

1,533.37

1,491.70

1,258.39

1,143.87

709.87

670.78

666.52

514.42

468.67

Purchase of Traded Goods

16.65

39.21

22.05

61.81

94.41

Increase/Decrease in Stocks

-5.91

7.34

-35.47

8.77

-16.96

Employees Cost

131.02

107.25

93.18

78.73

70.64

Admin. And Selling Expenses

272.83

283.61

286.19

234.64

204.99

Other Expenses

224.02

209.79

225.74

175.77

150.07

Total Expenses
Operating Profit
EBITDA

1,348.48
194.61
232.75

1,317.99
170.40
215.39

1258.21
193.49
229.97

1074.15
184.23
214.65

971.82
172.05
193.42

40.34

38.32

38.75

35.31

32.84

192.41

177.07

191.22

179.34

160.58

INCOME
Gross Sales
Less: Sales Returns

Other Operating Income

Total Income From Operations
EXPENDITURE
Consumption of Raw Materials

Depreciation
EBIT

66

Interest

84.71

89.94

84.81

70.06

61.12

EBT

107.70

87.13

106.41

109.28

99.46

Tax

30.81

19.49

35.15

32.00

23.30

Profit / for the year

Non Recurring Items

76.89
.00

67.64
.00

71.26
.00

77.28
.00

76.16
-12.50

REPORTED PAT

76.89

67.64

71.26

77.28

63.66

Net Profit/(Loss) For the Period

76.89

67.64

71.26

77.28

63.66

Equity Share Capital

26.61

26.61

26.61

26.58

26.54

Reserves and Surplus

869.44

793.97

745.37

692.46

659.50

40.00

40.00

40.00

40.00

40.00

Basic EPS

5.78

5.08

5.36

5.82

4.80

Diluted EPS

5.75

5.08

5.35

5.81

4.76

No Of Shares (Crores)

--

7.92

7.92

7.91

7.92

Share Holding (%)

--

59.54

59.54

59.50

59.65

Equity Dividend Rate (%)

EPS Before Extra Ordinary

Public Share Holding

67